Bill Ackman SPAC sued, plaintiffs claim sponsors get ‘staggering compensation’

Bill Ackman’s troubled PSPC was hit with a lawsuit Tuesday that alleged the blank check company had awarded “staggering compensation” to its sponsors and demanded that the entity’s special status be revoked.

The plaintiffs in the lawsuit – former Securities and Exchange Commission commissioner Robert Jackson and Yale law professor John Morley – claimed that Pershing Square Tontine Holdings was not an operating company at all, but that PSPC d ‘Ackman was more of an investment firm, as were his hedge funds. . They said PSPC should adhere to the 1940 Investment Companies Act.

The lawsuit said that “by telling the world that PSTH is not an ‘investment company’ as that term is defined in the ICA, the defendants structured PSTH to charge its public investors. which amounts to hundreds of millions of dollars in compensation. “

“Under the ICA and [Investment Advisers Act of 1940], the form and the amount of this compensation are illegal, ”he said.

The Investment Companies Act and the Investment Advisers Act are the main laws governing investment firms and investment advisers, and they give the SEC the power to regulate these entities.

SAVS, or acquisition companies with a specific vocation, are shell companies listed on the stock exchange with the aim of acquiring a private company and listing it on the stock market.

The lawsuit, filed in Manhattan U.S. District Court, disputed the alleged $ 880 million that PSPC sponsors received from the buyback of warrants, 13 times what they originally paid. Warrants are a deal softener that gives investors the right to buy a stock at a certain price for a certain time.

“This staggering compensation was promised at a time when the returns of the company’s public investors have significantly underperformed the rest of the stock market. It is hardly the arm’s length market demanded by the ICA and IAA.” , indicates the folder.

Ackman’s SPAC last month abandoned its deal to buy 10% of Vivendi’s flagship group Universal Music, citing SEC concerns.

The deal would leave $ 1.5 billion of residual cash in Ackman’s SPAC, which would be integrated with a SPARC, a special-purpose acquisition rights company, the first of its kind, for another acquisition down the road. .

Ackman previously told CNBC that regulators feared the new entity created under the deal could become an investment company.

A spokesperson for Pershing Square said the complaint bases its allegations, among other things, that the PSTH owns or has owned U.S. Treasuries and money market funds that hold U.S. Treasuries, such as the do all the other PSPCs while they are looking for an initial business combination.

“PSTH has never held any investment securities that would require its registration under the law, and does not intend to do so in the future. We believe that this litigation is completely without merit,” said declared the spokesperson.

The New York Times first reported the trial on Tuesday morning.

The SPACs are also hit by a wave of class actions, as more and more agreements turn out to be failures and actions are dropped.

After a record first quarter, the SPAC market came to a screeching halt, with emissions falling nearly 90% in the second quarter due to increasing regulatory pressure.

– With help from CNBC’s Dan Mangan.